The Real Reason First Solar is Dimming

There's no doubt that times are tough for solar energy companies: U.S. solar subsidies ended on the last day of 2011; Germany decided to cut its solar subsidies earlier rather than later; and an oversupply as well as Chinese dumping of solar panels has depressed prices. So far, 2012 has not been very sunny for solar companies. Even against this backdrop, however, First Solar (NAS: FSLR) , has seen its prospects dim at an accelerated rate.

The bad news coming in from First Solar, once a trickle, is now more like an open spigot: a Q4 loss of $413 million, an EPS miss of $0.28, and revenues that missed projections by nearly $120 million. The company gained the dubious distinction of being the worst-performing stock in the S&P 500 for last year, and has lost nearly 80% of its value from this time last year. That's pretty bad for a stock that traded at over $300 less than four years ago.

Other solar companies bruised, but not all are bloodiedSunPower (NAS: SPWR) , like First Solar, has become a player in developing solar farms and securing utility and commercial contracts. Its stock has also taken a hit, though by comparison with the beating First Solar suffered, it's just a black eye. To be fair, SunPower has French oil company Total (NYSE:TOT) owning a majority share of its stock, and Total's CEO has vowed to use its clout to aid its solar subsidiary.

Suntech (NYS: STP) shows a stock value loss of 67% YOY, but is up 39% in 2012, thanks to an upbeat Q4 report. The Wall Street Journal reports that Japan will institute a new feed-in tariff for renewable energy, as the country rethinks nuclear energy production. Suntech and Trina Solar (NYS: TSL) , already entrenched in Japan, have high hopes of cashing in on this new development. Trina has also had its share of troubles, losing nearly 73% of value in one year. The company did beat expectations on revenue expectation in Q4, however, and Bank of America and Merrill Lynch upgraded the stock to "buy" status a short time ago.

First Solar's problems transcend the marketAs reported by Reuters.com, First Solar took a charge against earnings of $125 million in order to make good on warranty work. It seems that panels manufactured between 2008 and 2009 have had more than their share of problems. These problems had not been revealed to investors until recently, which may have helped propel the precipitous drop in share value.

In addition, the company seems oblivious of the need to move on from the second-generation cadmium telluride solar cell technology that was, for many years, extremely cheap to manufacture. Not anymore. Interestingly, in the spring of 2009, Oasis Consulting published a report that laid out in no uncertain terms First Solar's need to invest in new technology to replace its inefficient panels, or face the consequences. Did they do so? No -- and now it appears time to pay the piper.

First Solar recently announced a new, more-efficient cadmium telluride photovoltaic module, but it seems a day late and a dollar short. The 14.4% efficiency is certainly an improvement, but still not as good as the efficiencies of SunPower (20.1%) and Trina Solar (16.4%), as reported by Fool.com writer Travis Hoium back in September of last year.

Fool's TakeThe golden rule of business growth and profit is that there must be innovation and investment in the enterprise. First Solar has ignored those truisms, and is on the road to oblivion if it doesn't shape up soon. It must invest in newer solar technologies if it ever to relive its heyday -- otherwise, FSLR will soon become the next Research in Motion.

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